Another Bank of England official has weighed in to criticise the government’s mini-budget announcement – rebuking the absence of Office of Budget Responsibility (OBR) input, detailing how the UK bond market reaction was unique, and reiterating the Bank’s resolve to return inflation to 2%.
Jonathan Haskel, a member of the Bank of England‘s interest rate-setting Monetary Policy Committee (MPC), has reiterated and added to criticism from the Bank directed at the government.
The absence of OBR involvement in the mini-budget on 23 September came under fire for creating uncertainty.
“A sidelined OBR generates more uncertainty by worsening everyone’s information base,” Mr Haskel said, adding that the Bank makes use of OBR data when preparing its forecasts.
The Bank’s unprecedented intervention into the UK government bond market in the wake of the mini-budget, to prevent mass default in pension funds, was done to prevent spillover into households and businesses.
“The Bank of England, rightly intervened, in a way that is targeted and temporary, to restore gilt market functioning. Restoring market functioning prevents costly self-fulfilling market dislocation that might spread from financial markets into credit conditions for UK households and businesses,” Mr Haskel said.
While the government has maintained the market reaction was due to external, global factors, the Bank once again stated the UK was an outlier.
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“In the days following HM Treasury’s fiscal event on Friday 23 September, there was a significant divergence between government bond yields in the UK and in other countries”, Mr Haskel said.
“Between close of business on Thursday 22 September (the day before the fiscal event) and close of business on Tuesday 27 September (the day before the Bank’s market intervention), US and German 30-year government bond yields increased by around 20 basis points. By contrast, UK 30-year gilts rose by 120 basis points.”
As part of the gilt (UK government bond) market intervention, Mr Haskel said £3.8bn had been spent as of Thursday. The Bank had announced it will purchase up to £5bn in long-dated gilt per day for 13 working days, up to £65bn in total.
Mr Haskel expressed confidence in the Bank’s ability to reduce inflation to it’s 2% target in the medium to long term.
“The MPC’s remit is to achieve low and stable inflation in the medium term, with a target of 2%. The MPC has the tools and resolve to return inflation to target in the medium term,” he said.
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A warning was sounded by Mr Haskel of unemployment being a potential block for growth. The UK is at odds with other western economies when it comes to the unemployment rate, he said.
While neighbouring countries have seen economic inactivity decline, the UK has experienced a rise in economic inactivity, otherwise described as unemployment.
He continued: “In most countries in the developed world, the economic inactivity rate, that is the proportion of people neither working nor actively searching for jobs (and hence meeting the definition of unemployment), increased during the pandemic, but then fell back… but the UK is different.
“In stark contrast to the EU aggregate and the median OECD country, economic inactivity in the UK has risen by 0.7 percentage points over this period. This rise in economic inactivity will hold UK growth back.”
